Appeal of SMSFs spreading to younger generations, says report
Creates opportunities for advisers to grow their businesses
18 February 2014: The demand for SMSFs among younger people is growing apace, according to the latest research report commissioned by the SMSF Professionals’ Association of Australia (SPAA) and Russell Investments.
The report, titled “Intimate with Self Managed Superannuation”, found that although people aged over 50 still comprised the largest number of SMSFs, the strong growth was in the younger demographics.
“It is the 41-50 age group that continues to be the largest source of demand, as cited by three-quarters of financial planners. This is followed closely by those in the 31-40 age group, where two out of three advisers are expecting greater demand from them.
“It is this younger demographic that has exhibited strong growth over the past three years. They are interested in the longer term and have a good understanding of the short-term issues versus the longer term opportunity,” the report says.
Intimate is the fourth consecutive report on the state of the SMSF sector based on two online surveys developed by CoreData in partnership with SPAA and Russell. A total of 1267 Australian consumers were interviewed, of which 385 were SMSF trustees and 882 did not have an SMSF.
SPAA CEO Andrea Slattery says: “The continuing strong growth in the younger demographic is both significant and encouraging. It means more young people want to take control of their retirement incomes, and, for the professional advisers it creates the opportunity to grow their businesses.
“As the report found, the popularity and awareness across superannuation remains high as evidenced by the sector’s growth in terms of FUA, accounts and members.
“Although the proportion of superannuats looking to establish an SMSF in the next five years has dropped from 12.3% from 17.3%, the intention still remains high over the longer term with 14.3% of the non trustees likely to set one up over the next five years.”
Contribution caps and constant legislative change, however, are still taking their toll. Slattery says that for the fourth successive year, SMSF trustees have said that they under-invested in their future retirement by $16 billion a year because of these factors.
On the investment front, the report says the expected movement out of cash in 2013 because of the strong rise in equities simply did not occur. In 2012, the allocation to cash was 33.9% and in 2013 this figure had only fallen to 31%.
Australian equities did not benefit, however, witnessing a slight decline from 37.1% to 36.1%, with residential property benefiting with a rise from 5.6% in 2012 to 9.9% in 2013.
Based on these numbers and the fact that international equities rose sharply in the 2013 calendar year, the report says there is a real opportunity for financial planners to educate trustees about the benefits of diversification “but also how risk as a concept is not related to asset classes along the risk curve but is also related to risk as an opportunity cost”.
Scott Fletcher, Director, Client Investment Strategies, Russell Investments says: “It is clear from the report that investment advice is most valued by SMSF trustees.
“It’s not all about picking stocks and sectors; SMSFs need to tap into strategic investment advice to help them achieve their desired goals and deal with complex issues such as sequencing risk, and the impact of this on retirement outcomes. There is a real opportunity for advisers to step up into this role.
“Like all investors, the preferences and biases of SMSF investors have a significant impact on their strategic asset allocation and their ability to link goals to outcomes. This is an underappreciated aspect of portfolio design that advisers can shed light on. Often, SMSF investors will jump straight to the vehicles they prefer to invest in, bypassing the all important goal-setting and asset allocation steps in the process.“
The report adds that it will be a challenge for financial planners to educate trustees about the potential opportunities available in other asset classes outside of cash and direct Australian equities.
“However, given trustees’ dislike or lack of understanding of diversification, planners need to demonstrate the value of other asset classes and how these can play a role in helping trustees achieve their retirement objectives.
“This will be a difficult challenge, however, as three in five trustees claim they have a “strong” or “very strong” knowledge of investments compared with non-trustees, with the majority (51.9%) using their own research process,” the report says.
Attached please find: Copy of media release, full report and presentation
The SMSF Professionals’ Association of Australia (SPAA) is the authoritative voice for the self-managed superannuation fund (SMSF) sector. SPAA, which represents professionals providing a range of services across various disciplines in the complex area of SMSFs, is an advocate for the highest professional standards and competence to ensure SMSF trustees always receive the best possible advice.
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